Even After Saudis Offer Oil Cuts to Iran, OPEC Deal Remains Elusive

An agreement to boost prices could be drawing closer after Saudi Arabia signaled for the first time in two years that it’s willing to cut production even though OPEC members aren’t likely to reach a supply deal in Algiers next week.

Two people familiar with the negotiations were quoted in the media saying that despite the Saudi offer to pump less if Iran caps output at current levels Saudi Arabia and Iran didn’t reach agreement after two days of preparatory talks in Vienna. The rivalry between the two countries thwarted a deal with other major producers in April.

Talks will continue and OPEC meets again in two months, said a delegate familiar with its policy, even as the kingdom doesn’t now anticipate any formal decision on supply will be taken in the Algerian capital.

Prospects of a cooperation between OPEC and Russia to curb a global supply glut next week — already seen as unlikely by market watchers, have been dimmed by the impasse between the Middle East neighbors. The delegation from Moscow could leave before the informal talks scheduled for Sept. 28, three people familiar with the matter said and only intends to join discussions after OPEC members reach a supply agreement between themselves.

“It’s difficult to come to the conclusion that a freeze would be credible or doable,” said Ed Morse, head of commodities research at Citigroup Inc. in New York.

If Iran were to cap production at the current level of about 3.6 million, Saudi Arabia said it would be willing to reduce its output.

As the surge in demand for air conditioning in the hot summer months begins to fade, the kingdom often does curb production at this time of year. According to data compiled by Bloomberg, noting an increase of 490,000 barrels a day from January, the kingdom pumped a record 10.7 million barrels a day last month.

After two years of leading OPEC’s strategy of unfettered production to squeeze out high-cost rivals, the Saudis offer to Iran does signal that the kingdom is seeking some kind of deal to reduce the global oil glut. The International Energy Agency is predicting the surplus could persist for a fourth year into late 2017 as oil prices remain below $50 a barrel — less than half the level of 2014.

A person familiar with Saudi policy was reported as saying that more time for discussions with other countries would be available in the months leading up to the official OPEC ministerial meeting in Vienna on Nov. 30. To encourage essential investment in the energy industry, the kingdom, the world’s largest crude exporter, wants to see higher prices. Oil and gas companies could be on track to cut spending for a third straight year, the IEA warned this month.

During talks about a deal between OPEC and Russia in Doha on April 17, Iran refused Saudi Arabia’s influential Deputy Crown Prince Mohammed bin Salman’s insistence at the last minute that Iran had to participate in a freeze which led to a collapse of the talks. Iran said it just starting to revive exports following the end of international sanctions.

(Adapted from Bloomberg)

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Categories: Economy & Finance

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